Hedge Fund Collapse..........

[FinanceDude]

read in the WSJ the other day that Aranth (spelling?) Advisors took a big bet and lost.........and have lost 65% of their value............or 6.5 billion dollars...............

Brewer, any comment

 

[brewer12345]

They were idiots with little/no risk controls. Plain and simple.

 

[FinanceDude]

They were idiots with little/no risk controls.  Plain and simple.

Makes sense.............what about LTCM? Those guys on paper were not idiots......

 

[brewer12345]

Makes sense.............what about LTCM?  Those guys on paper were not idiots......

Caveat Emptor, as with all investments.

 

[yakers]

A good idea about why more common folks are headed into Hedge Funds from The Economist:
http://www.economist.com/finance/displaystory.cfm?story_id=7912700

In part:
"And yet investors may be willing to gamble, despite the higher fees, because they desperately need high returns. The bear market between 2000 and 2002 brought a sober reassessment of the future returns likely from equities and bonds. With bonds yielding 4-5% and equities returning perhaps 3% on top, composite future returns of 6% or so looked inadequate. Peter Harrison, chief executive of MPC, a fund manager, says that American pension funds have analysed their liabilities. “They need more than 6% to make up the shortfalls in their funds. Whether they earn alpha or not, they have to roll the dice and try to get it."

 

[Nords]

Makes sense.............what about LTCM?  Those guys on paper were not idiots......

Bill Sharpe also says that it's a good thing the Nobel Committee can't reclaim their awards.

 

[FinanceDude]

A good idea about why more common folks are headed into Hedge Funds from The Economist:
http://www.economist.com/finance/displaystory.cfm?story_id=7912700

In part:
"And yet investors may be willing to gamble, despite the higher fees, because they desperately need high returns. The bear market between 2000 and 2002 brought a sober reassessment of the future returns likely from equities and bonds. With bonds yielding 4-5% and equities returning perhaps 3% on top, composite future returns of 6% or so looked inadequate. Peter Harrison, chief executive of MPC, a fund manager, says that American pension funds have analysed their liabilities. “They need more than 6% to make up the shortfalls in their funds. Whether they earn alpha or not, they have to roll the dice and try to get it."

Haven't they heard of Vanguard??

 

[yakers]

Haven't they heard of Vanguard??

I think The Economist article does somewhat explain why there is such a flow of money into hedge funds, even by some who should know better. And it is indeed a backhand endorsement of the Vanguard approach.